Genesis Energy generated $167.6 million of adjusted EBITDA during the fourth quarter. While that was 21% below the year-ago level, CEO Grant Sims noted in a press release that its “diversified businesses in total performed slightly better than our expectations” for the quarter. Because of that, he said, it “ended the year toward the high-end of our revised annual guidance for Adjusted EBITDA.” Furthermore, the MLP produced enough cash to cover its 12.4%-yielding distribution by 1.3 times.
But the company continues to experience some headwinds from a global slowdown in demand for soda ash, an ingredient used to make dyes, coloring agents, detergents, and fertilizers. Genesis noted that this accelerated during the fourth quarter, which will impact its results in 2020 because the industry sets prices for the year in December. As such, Genesis Energy expects this business’ EBITDA to be $35 million to $45 million below 2019’s level of $165 million.
Those headwinds, when combined with Genesis’ weaker financial profile, put its high-yield distribution on shaky ground. On a positive note, the company believes it will operate “very close to cash flow neutral this year.” Furthermore, it has “very good line of sight on significantly improving financial performance” beyond 2020 as its existing soda ash operations return to their historical norm and its expansion projects start up.
Because of that, it believes it can maintain its payout and eventually de-lever its balance sheet. But it’s much too risky for dividend investors these days since another unexpected headwind could force the company to reduce its payout.